A textbook example has played out in U.S. corporate inventories of how hoarding in the face of moonshotting prices works really well, right up until it almost kills you:
After falling sharply for a year, U.S. inventories shot up by $6.2 billion unexpectedly in the fourth quarter of 2008, according to the latest U.S. Commerce Department figures. The surge underscores the rapid demand decline that is hitting large and small manufacturers.
"The system went from full speed ahead to stop," said Ronald DeFeo, chief executive of Westport, Conn., mining and construction equipment maker Terex Corp. "We’re working like crazy to stop our suppliers at the door and send them away — and they’re doing the same thing. So it’s reverberating back through the system."
The upshot is that companies up and down the line are slashing prices and throwing the brakes on new production. As they rush to clear away the excess, their actions tend to magnify slowdowns already under way. Tighter inventory systems have lessened, but not eliminated, this pileup effect, economists said.
"However good our systems are, it’s difficult to cope with the magnitude of the decline in sales that we have seen," said Nigel Gault, an economist with IHS Global Insight, an economic forecasting and consulting firm in Lexington, Mass.
Part of the problem is that many companies built stockpiles last year in the face of surging prices for items such as steel and plastics. That goes against the principles of just-in-time production, which dictates holding minimum stocks of raw materials. But such hoarding makes sense when prices are rising.
More here.
Related posts: